The objective behind the measure is to fund and encourage new apprenticeships through the introduction of a levy on all employers with a UK payroll bill in excess of £3m per annum, regardless of whether apprentices are employed. It is anticipated to raise approximately £3b a year over the next five years.
From 5 April 2017, employers with a UK payroll bill in excess of £3m will be charged a levy of 0.5% of their full UK payroll bill. Each employer will receive an allowance of £15,000 to offset against their levy payment, the intention being that the levy will only be payable on pay bills in excess of £3m a year. The “UK payroll bill” will be based on total employee earnings subject to Class 1 secondary NICs. Any cash payment made by an employer to an employee is likely to be earnings for NIC purposes. This includes salaries, bonuses and vouchers. It does not include the reimbursement of genuine business expenses or dividends paid.
The levy will be payable on a monthly basis through PAYE (Pay as You Earn) and will be payable alongside income tax and National Insurance. Therefore, if the UK payroll bill changes, the levy payable will reflect such changes.
In order to reduce the burden of implementing these changes, HMRC will work closely alongside employers and payroll service providers.
The levy payment will then be ring-fenced in the form of an electronic voucher that can be used to acquire training from 1 May 2017 from recognised providers. Any unused vouchers will expire after 24 months. Note that the voucher system will not be available in Scotland and funding will continue to be through Skills Development Scotland.
All employers with a UK payroll bill over £3m will be required to pay the levy, regardless of whether they subsequently re-claim voucher funds to purchase apprenticeship training.
Apprenticeship Levy payments are a deductible expense for Corporation Tax.
Based on proposed funding rules, the levy can be claimed back and spent on apprenticeship training for all employees at all levels and ages, including graduates who may be eligible for Level 6 or 7 apprenticeship programmes.
Connected companies may be liable to the apprenticeship levy if the combined UK payroll bill exceeds £3m. Where several employers are connected as a group, they will only be able to use one £15,000 levy allowance. The definition of connected companies and charities is based on the definition in the Employment Allowance rule. Companies are connected for the purpose of claiming the Employment Allowance if:
• a company has control of another company
• they are under the control of the same person or people, for example companies linked in a group
The term ‘control’ is given the same meaning as in sections 450 and 451 of the Corporation Tax Act 2010. This is where a person has or is entitled to acquire the greater part of the share capital or voting power in a company, or in the event of a distribution of the company’s income the greater part of the amount distributed, or in the event of distribution of assets the greater part of the company’s assets.
Where the company is part of a group of connected employers, the group must decide what proportion of the levy allowance each employer in the group will be entitled to. This decision must be made at the beginning of the tax year and will be fixed for that tax year, unless a correction is necessary because the total amount of the levy allowance claimed across the group exceeds £15,000. Each employer in the group will then calculate what they have to pay through the same processes set out above, but using only their portion of the £15,000 levy allowance.
Technical information with worked examples is available in the Apprenticeship Levy manual.
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The information in this blog should not be regarded as financial advice. This is based on our understanding in April 2017.